So the Apple Watch has phone functionality, which is pretty cool. But it would've made sense to add a front facing camera for FaceTime calls too! Something to stand out from the crowd.
Where do you put the camera?
How much extra does it cost?
How much larger does the watch have to be as a result?
What are the privacy implications?
Are you going to stand there holding your arm up to your face for 25 minutes?
What are they going to put on version 2 to tell you that it is better than version 1?
This isn't the iPad 1 all over again. There just isn't room inside the watch for a camera. Where on the iPad 1, there was room, it just wasn't added probably due to cost.
Putting aside considerations of a camera, the Watch almost certainly communicates with the phone via Bluetooth, which I assume doesn't have the bandwidth for video.
Bluetooth 4.0 has a bandwidth of 24 megabits per second. More than enough for video and audio. Even Bluetooth 2.0 would be adequate with 3 megabits per second or roughly 80 kilobytes per second.